Chapter 3: Cost-Volume-Profit Relationships

Place in the following order in which they appear on the contribution margin format income statement: Variable expenses Contribution margin Sales Net operating income Fixed expenses

(1) Sales (2) Variable expenses (3) Contribution margin (4) Fixed expenses (5) Net operating income

Place in the order in which sales dollars are applied on a contribution margin income statement: Net income Variable costs Fixed expenses

(1) Variable costs (2) Fixed expenses (3) Net income

What must be subtracted from sales to reach the contribution margin:

(1) Variable selling & administrative costs (2) Variable overhead (3) Variable direct labor (4) Variable direct materials

At the break-even point:

(1) net operating income is zero (2) total revenue equals total cost

The variable expense ratio is the ratio of variable expense to:

sales

The contribution margin is equal to:

sales minus variable expenses

The formula used to calculate the sales volume needed to achieve a target profit is:

Target Volume (sales dollars) = (fixed costs + target profit)/(contribution margin ratio)

Assuming all else remains the same, what would increase profits according to the CVP analysis model:

a decrease in the unit variable cost

Variable costs per unit is calculated by dividing total variable costs by total:

activity

Contribution margin divided by sales is the formula for:

contribution margin ratio

CVP is the acronym for:

cost-volume-profit